Another day, another two big wins for my Portfolio Accelerator.
Yesterday, I closed out an 83.3% win on an electric vehicle manufacturer and another 77.8% gain on an “at-home” stock.*
I am loving this market. And I plan to be very ACTIVE – especially on the news out of Washington on Monday.
We are likely going to get a very BIG stimulus package in 2021 to help boost the economy.
That doesn’t mean that one should blindly start buying up stocks.
In the coming week, we could start to see a pullback in certain sectors like Electric Vehicles – which have been rallying at levels I haven’t seen since the Dot Com years.
Let’s dive into the latest developments in the market and take a look at the stocks I’ve just added to my Watch List.
On Tuesday, the Dow Futures popped 300 points on news that the Trump Administration has started the transition process. General Services Administration head Emily Murphy told President-Elect Joe Biden that federal resources will be used to aid the transition.
Today’s pop higher complements yesterday’s gains. On Monday, Joe Biden announced that former Federal Reserve Chair Janet Yellen will become the Secretary of the Treasury Department.
Yellen was hawkish at one point on interest rates in recent years. But she has made it clear that she favors low rates, more stimulus, and aggressive moves to get the U.S. economy back on track. The market sees her as a non-partisan voice given her track record at the Federal Reserve.
The market also knows her track record.
If the last decade has taught us anything, it’s that it operates on the latest dose of stimulus and Fed purchasing. We aren’t turning off the money hose.
Still, it will be interesting to see how she handles the position – which will place a greater emphasis on fiscal policy (taxes, subsidies, etc.) instead of monetary policy (the mechanisms of the central bank). Overall, I think that Yellen will be positive for the market. Her mandate will center on getting the economy going.
That said, she will likely not turn her attention to creating any form of a regulatory regime for banks or hiking taxes as many people had feared. Yellen had served one term at the head of the central banks. President Trump replaced her with Jerome Powell.
CHGG: Chegg is a polarizing company on Wall Street. Shares have doubled this year, and price targets are all over the place. It comes down to what you think will happen in the future of education in the United States. The Chegg bears think that the College System will endure. I disagree. I think that the future of college is digital. Even the Wall Street Journal hijacked my “End of College as We Know It” language. The upside here is about $95 to $100 per share.
PACW: The news of Janet Yellen at Treasury is good news for banks. They’re not out of the woods right now given the state of the economy, but we might be looking at Helicopter Money in the first quarter to provide support. PacWest Bancorp is a Silicon Valley player. So, while all of the tech stocks are going through the roof, one of their most important banks remains about 55% lower than where it was in January.
CIEN: Ciena Corporation is a 5G stock that isn’t very exposed to the Chinese economy. Strong fundamentals. Bullish news sentiment. And overall – Bullish sentiment from Wall Street. The stock is trading at a discount compared to industry rivals like Corning, which trades at a higher revenue multiple and has a much larger debt load. I think that when CIEN guidance turns the corner, this could be a terrific stock for 2021. It will just require a little patience.
Other Names to Watch: COR, BA, RVP, TSCO, AVLR, IQ, COUP
Best Low-Risk Options for Return on Investment
Markets can go from great to volatile quickly. During your journey to building wealth, you will want to balance your investments so that your potential gains are outweighed by your involved risks. The cash you have invested may bounce around a bit or not manifest soon enough in these types of situations.
Luckily, you have many options when choosing the best investments for returns. There are lower-risk choices, such as CDs or a money market account, as well as medium-risk investments like corporate bonds. There are also riskier options, such as stock index funds. What’s good about this is that you can invest in the returns that best fit your risk profile.
Combining investments is one way that you can create a diversified, and well-rounded, portfolio. The content below will help explain your options for the best investment returns.
Your traditional savings accounts earn you mere pennies per day. A high-yield savings account is one option for a better return on investment. Benefit from lower overhead costs while still earning higher interest rates than with a traditional, or even an online, bank. May 2020 rates for a high-yield savings account were paying, and sometimes passing, 1.5%. If you might need access to cash in hand in the near future, this may be your best bet.
CDs, or certificates of deposit, generally offer an even higher interest rate than a high-yield savings account. These are issued by banks, which means they are federally insured. They usually offer specific maturity dates ranging from weeks to years away. You cannot withdraw the money without penalty for a specified time period.
Financial institutions pay the interest rate of CDs out at regular intervals. After it matures, the original principal is paid back plus accrued interest. As of May 2020, an annual percentage rate of 1.8% may be earned on these specific investments.
Since CDs generally offer higher payouts and a sense of safety, they can be one of the best money returns for those who are able to invest their money and keep it tied up for a while. Certificates of deposit come in many types, offering investors the ability to take advantage of higher interest rates.
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A money market account is an interest-bearing deposit account that is FDIC-insured. They generally earn higher interest rates than a savings account but require a higher minimum balance. They earn higher yields and are fairly liquid, resulting in being one of the best ROI investments. Some investors even use them as emergency savings.
Consumers usually will face more restrictions on their withdrawals in exchange for better interest earnings. Limits can include things such as limiting how often you’re able to access your money. Beginning investors find money market accounts to be an investment with the best returns and use them to build a cash flow.
There are various types of U.S. government-issued securities in order to raise some of the funds used to pay debts and fund projects. In terms of protecting your principal, treasury security is one of the safest investments. Treasury bills, also known as T-bills, mature in one year or less. While not technically interest-bearing, they are sold for less than face value. After maturity, you get paid the full face value. For example, let’s say you purchase a $2,000 T-bill for only $1,850. When it matures, you will have earned $150.
Known as one of the investments with the best returns, you can purchase a T-note in two-, three-, five-, seven-, and even 10-year forms. The investor earns a fixed interest rate every six months and then the face value once the T-note matures. Your T-note can be greater than, equal to, or less than the face value of the note, depending on what the demand is at the time. If there’s a great demand by investors, your note will trade at a premium rate.
With 20- to 30-year maturity dates, treasury bonds also pay interest every six months and then at face value upon maturity. T-notes are sold at auction at different times throughout the year, with prices and yields determined at the time of auction.
Each type of security bond is offered in $100 increments and is another of the investments with the best returns for investors who are looking to reduce risk.
Another of the best investment return options is a government bond fund. These mutual funds are invested in debt securities that are issued by the federal government and its agencies. Funds are invested into debt instruments such as treasury bonds, notes, and bills as well as mortgage-backed securities that are issued by government enterprises such as Freddie Mac and Fannie Mae. These types of government bond funds offer the best rate on return investment for low-risk investors. They can also be a great choice for beginners who are wondering which form of cash flow has the best return on investment.
T his information can be a great resource when figuring out which options offer the best returns on investment. Building your wealth isn’t a quick process but knowing risks offer higher returns will make it worth it. You need to determine when it’s safer to invest in a low-risk investment with a lower return or take the leap. With the right knowledge, you will be able to manage your own assets.
Investment Portfolio Management 101
F inancial portfolio management requires the ability to balance opportunities and threats, along with strengths and weaknesses from across the entire spectrum of investments. Selecting the best investment and portfolio management tool involves trade-offs, including debt vs. equity, domestic vs. international, and growth vs. safety.
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Some people opt to build and manage their own stock portfolios, while others look to professional investment portfolio managers. Either way, an investment portfolio manager’s ultimate goal is maximizing the anticipated return for investments within an acceptable risk level exposure. Investment portfolio management can be either active or passive in nature.
Investors implementing an active investment portfolio management approach try to outperform specific indexes such as the Russell 1000 Index or S&P 500 Index using brokers or fund managers to purchase and sell assets.
Actively managed investment funds can have a team of managers, co-managers, or a single investment portfolio manager actively making decisions for the fund. An actively managed fund’s success depends on several factors, including the investment portfolio manager or management team’s expertise, market forecasting, and in-depth research.
Investment portfolio managers need to pay close attention to news affecting companies, political landscape changes, economic shifts, and stock market trends. They use this information to time the buying and selling of investments trying to take advantage of irregularities. Active investment portfolio managers claim these processes help increase potential returns above what is typically achieved simply mimicking a particular indexes holdings.
Attempting to beat the stock market does require an investor to have a higher risk tolerance level. You can eliminate this particular risk by indexing as it removes possible human error related to stock selection.
Investors also trade index funds less frequently, meaning that they are more tax-efficient and incur lower expense ratios than actively managed funds.
Passive portfolio management is also known as index fund management. This type of investment portfolio management looks to duplicate the returns of particular benchmarks or market indexes. Passive portfolio investment may be structured as a unit investment trust, an exchange-traded fund (ETF), or a mutual fund.
Investment portfolio managers purchase the same assets that are shown on the index, using the same percentages they have within the index. Index funds are known as passive management since managers simply replicate indexes rather than selecting securities to buy and sell.
Passive funds or portfolios generally have far lower management fees than active management strategies.
Investment portfolio management is the science and art of choosing and monitoring a collection of investments that meet investors’, companies’, or institutions’ risk tolerance and long-term financial goals.
The key to effectively managing investment portfolios is establishing a long-term mix of assets. Typically, this means certificates of deposit or other cash, bonds, and stocks. This can also include alternative investments, including derivatives, commodities, and real estate.
When determining asset allocation, it’s important to understand that the various types of assets don’t move in concert, with some being more volatile than others. Having a diversified portfolio, or a mix of assets, helps protect investors against risk while providing balance to the portfolio.
Traders having more aggressive profiles weigh their portfolios toward investments like growth stocks that have more volatility. Traders seeking a more conservative profile typically weigh their portfolios toward more stable investments like blue-chip stocks and bonds.
Investing has only one certainty: It’s impossible for investors to predict winning and losing investments consistently. The prudent approach is creating a portfolio of investments with broad exposure within a class of assets.
Diversification is spreading reward and risk within an asset class. Since it’s difficult to know which part of a sector or asset class will likely outperform the other, diversification looks to capture the returns of all sectors over time, reducing volatility along the way.
Real diversification is made across several classes of geographical regions, securities, and sectors of the economy.
Rebalancing is done when investors want to return their portfolios to the original target allocations. This is done at regular intervals, typically on an annual basis. Investors use rebalancing to reinstate the portfolio’s original asset mix when stock market movements force the portfolio out of kilter.
For instance, an investment portfolio starting with 60% equity and 40% fixed-income allocation may, after an extended market rally, move into a 70/30 allocation. While the investor may have made a nice profit, the portfolio is now at a riskier level than the investor is comfortable with.
Rebalancing usually involves selling high-value assets and putting those funds to work in out-of-favor and lower-priced assets.
By annually rebalancing their investment portfolio, investors can capture gains while expanding growth opportunities in high potential sectors while maintaining a portfolio with the original return/risk profile.
Managing investment accounts is no easy task. Between taxable investment accounts, health savings accounts (HSAs), individual retirement accounts (IRAs), and employer 401(k)s, this can result in investors needing to manage multiple investment portfolios.
Juggling several accounts can be difficult and comes with significant challenges, including establishing an asset allocation plan covering individual investments — monitoring performance involving signing in to various accounts to aggregate the information.
One way to effectively do this is to use an app or software to manage the process. Below are some examples:
Personal Capital’s financial dashboard is easy to set up by opening a free account and then linking all of your financial accounts to its platform. This can include 401(k)s, individual retirement accounts, taxable investment accounts, credit card accounts, and bank accounts. Your financial data is then aggregated by Personal Capital’s dashboard to provide analysis and a wealth of information, including:
Personal Capital can also organize investments by asset class using these investment categories:
In addition to sorting and aggregating your investment and account information, Personal Capital has tools to provide insight into the fees you’re paying, your retirement investments, and an investment checkup reviewing the overall allocation of your assets.
There are several differences between Morningstar’s Portfolio Manager and Personal Capital’s financial dashboard. The most noticeable difference is that you need to enter all of your investments into Morningstar’s Portfolio Manager tool manually.
While more time is required to enter your investment account information into Morningstar’s Portfolio Manager, the analysis this tool provides makes the extra effort worth it. This investment management portfolio tool gives you basic information about each of your investments, including its percentage weight in the overall portfolio, daily changes in value, and its current price.
Morningstar also provides information on the portfolio’s overall performance along with your portfolio’s monthly and annual return while comparing it to benchmarks chosen by you. What really sets Morningstar apart, though, is its Instant X-Ray feature.
Instant X-Ray provides you with detailed information regarding your portfolio’s asset allocation while showing you your portfolio’s investment style box for both bonds and stocks. Your investments are broken out by region, stock type, and sector while showing you your portfolio’s weighted average mutual fund expense ratio. Finally, it illustrates the percentage each investment has within your portfolio’s entirety. This information may be particularly helpful if you invest in mutual funds.
Morningstar offers both free and paid membership options, and its portfolio monitoring tool is available with either option.
Whether doing investment portfolio management on your own or with the help of a professional investment portfolio manager, it’s important to balance threats and opportunities with investment strengths and weaknesses. Understanding what goes into investment portfolio management can help you make the right decision for your investing future.